The Ministry of Justice has rejected the Institute of Chartered Accountants in England and Wales’ application to regulate reserved legal activities.

In a letter confirming his decision yesterday, Lord Chancellor David Lidington said he was unconvinced that the ICAEW’s proposed Legal Service Committee would be sufficiently independent from the wider organisation.

The regulator was authorised to regulate probate and grant ABS licences in 2014 but sought to extend its remit to regulate reserved legal activities within tax practice last year.

The move, which was backed by the Legal Services Board, would have given the ICAEW regulatory powers over conduct of litigation, rights of audience, reserved instrument activities, notarial services, and administration of oaths.

As well as scepticism over the ICAEW’s governance structure, Lidington expressed doubt over the accountancy regulator’s rationale for seeking the extended remit.

“It is my conclusion that there is a material distinction between the tax work which accountancy firms may currently undertake and the additional reserved legal activities they seek to undertake,” he said.

Lidington drew a distinction between accountants’ usual role of determining tax liability, and the handling of criminal or civil litigation by lawyers.

“It is one thing for accountancy practices to be expert in taxation, but quite another to be proficient in the conduct of civil or criminal litigation in the courts,” he said.

His letter echoed the concerns of the Legal Services Consumer Panel and the Lord Chief Justice that limiting the ICAEW’s reserved practice to ‘taxation services’ would be both difficult to define and confusing for consumers.

The confusion, he argued, would be in neither the public nor consumer interest and would “add complexity to the regulatory landscape”.

The ICAEW has in turn expressed disappointment at what it termed an “unprecedented decision” by the Lord Chancellor and said it “[struggled] to understand the basis on which he has reached it”.

In defence of its application, the regulator cited the Competition and Markets Authority, which had supported the application. It had claimed that competition in legal services for individual consumers and small businesses was not working well after conducting a study of the market last year.

“The Lord Chancellor and the Ministry of Justice have not seized this opportunity to liberalise and regulate the market for legal services in England and Wales, to encourage more competition and to create better options for the consumer,” the ICAEW statement continued.

“We now need to study the detail contained in the Lord Chancellor’s decision notice to determine our next steps.”

Interim chair of the Legal Services Board Dr Helen Phillips said: “Our recommendation to the Lord Chancellor reflected our assessment of ICAEW’s application and the criteria which apply to such designations. The Legal Services Board carried out its statutory role, which was to assess the application in accordance with what is laid out in the Act.’

Lidington’s letter did not rule out consideration of a similar application in future, providing his “concerns can be suitably addressed”.